Tumult at the top in turbulent times

The rapid turnover of many senior executives is a reflection of the downturn.

Manny, Moe & Jack in September welcomed Michael R. Odell as the fifth chief executive officer in as many years. One analyst said companies tended to change leadership during downturns or upticks — during times of change — but not at the bottom, when they fear that “CEO change might accelerate problems.”
MICHAEL BRYANT / Staff Photographer

On March 16, about six weeks after Sovereign sent him packing, Perrault started his new job in Boston, as chief executive of a smaller banking company, Brookline Bancorp Inc., with $2.6 billion in assets.

That kind of quick turnaround is unusual, recruiters say. "These positions are few and far between," said Sally Stetson, founder of the executive-search firm Salveson Stetson Group Inc., of Radnor.

And with the economy in an uproar, boards are subjecting new hires to much more intense scrutiny. "It creates that much more pressure to deliver on results," she said.

It has been a busy year in executive suites in the Philadelphia area, with some departures reflecting the tough challenges of the economy.

In April, Charming Shoppes Inc. picked New York turnaround manager James P. Fogarty to replace Dorrit J. Bern, who resigned last summer under pressure from activist investors angry about the company's declining profits and her pay.

Three money-losing years at Unisys Corp., of Blue Bell, led to Joseph W. McGrath's departure in September. He was replaced in October by J. Edward Coleman, who polished Gateway Inc. for sale.

In September, as profits declined at the Pep Boys - Manny, Moe & Jack, Michael R. Odell became the Philadelphia company's fifth chief executive since the departure of longtime head Mitchell Leibovitz in May 2003. In that same month, David P. Holveck took over as chief executive at Endo Pharmaceuticals Holdings Inc., of Chadds Ford.

DuPont Co. picked Ellen Kullman as its new chief executive. She joined the Delaware company in September. Philadelphia's Sunoco Inc. also tapped a seasoned female executive, Lynn Laverty Elsenhans, to replace John G. Drosdick, who retired as chief executive in August.

The economy has altered the climate for recruiting for executives and for corporate boards, according to experts. Consider:

Top executives are being kept on exceedingly short leashes, by their boards and by government regulations.

"There's a lot of scrutiny, and shareholder pressure, and media pressure, and it's a tough environment, and they've lost some control, too," said Judith M. von Seldeneck, chairwoman of Diversified Search Odgers Berndtson, an executive-recruiting firm in Philadelphia.

One top area financial official confessed to a local business executive that when he goes to parties, he tells people he is a baker, not a banker.

"When they hear he is a chief executive of a bank, there is all this negative conversation," the local executive said, relating the story. "He's sick of getting all the grief."

It is too early for female business advocates to break out the champagne, but more women are landing on corporate boards. In 2009's first quarter, 38 percent of the newly nominated board members were women, according to a study by Directors & Boards, a journal of corporate governance based in Philadelphia.

"That's a jaw-dropping statistic," said James Kristie, editor and associate publisher of the journal.

"A financial crisis like we are in now will destroy the remaining vestiges of an old boys' club," he said. "I think that creates opportunities at the board level for new kinds of people."

In January, for example, Acme Markets Inc. president Judith A. Spires joined the board of Met-Pro Corp., a Harleysville manufacturing company.

Companies are asking their executives to limit their participation on other corporate boards - even though some board participation can provide valuable outside perspective to executives.

Even though chief executives bring highly valued expertise to boards, their own boards want them to mind the store at their own companies, especially now that board service is much more demanding.

"It used to be two hours over lunch," von Seldeneck said. "Now it can be most of a day, or even two days. Busy executives don't have the time. Boards meet more frequently. And it's worse if you have to travel.

"You have to participate and understand complex financial information," she said. "If you just sit there and play with your BlackBerry, you won't last long."

Some of the churn in executive turnover appears to be abating, said John Challenger, chief executive officer of Challenger, Gray & Christmas Inc., the Chicago outplacement company.

Challenger said that fewer changes were made in April than in any month since December 2004.

"Right now, because the economy is so bad, companies are struggling to survive. They aren't pushing out CEOs. They are battening down the hatches and holding on," he said. "CEO change might accelerate problems.

"Turnover accelerates during changes in the economy's direction. When things start to get worse or start to get better, new kinds of CEOs are needed. In a down period, you move to financially oriented CEOs who cut costs and who act cautiously," he said. "When the economy starts to improve, you want CEOs who are growth-oriented."

At the same time, executives are not all that willing to jump ship.

"It has to be a really compelling opportunity," Stetson said. As daunting as their situations may be, at least the pitfalls are known. "There is so much turmoil in the market," she said. A new company may have hidden, reputation-destroying minefields.

Indeed, all the scrutiny is making seasoned executives less willing to raise their hands to lead public companies, especially now that compensation is being curtailed, the experts said. Given the intense demands of the job in this climate, chances for success are slimmer.

"They want to leave when they are on top of their game," Stetson said. "It doesn't feel good to leave when a company is not performing, and they are not performing."